ASX drops 1.5pc as resources drag, on China data

The Australian sharemarket endured a horror start to the week, with weakness in the resources sector compounded by 22 stocks trading without the right to their dividend.

Around a third of the market’s losses came from stocks trading ex-dividend. Companies that traded ex-dividend on Monday included AMP Ltd, Aurizon, BHP Billiton, Brambles and Toll Holdings.

Mining giant Rio Tinto also dragged the index lower, falling by nearly 4 per cent to hit a new 11-week low as copper, lead, tin and aluminium prices sank to near three-month lows on weaker than expected Chinese manufacturing data.

Rio lost 3.68 per cent to close at $63.65 while BHP shed 1.27 per cent to $35.57.

AFR
AFR

The benchmark S&P/ASX 200 index closed at 5010.50, down 1.49 per cent, to reach its lowest value in 2 ½ weeks, even as job ads data suggested economic activity was on the rise.

Paterson Asset Management portfolio manager Jason Chesters said local investment confidence had been dashed by commentary from the Chinese central government encouraging municipal governors to rein in investment spending, infrastructure development, and to tighten lending criteria.

“The PMI numbers out of China have really put the market on the back foot," he said, referring to the purchasing managers index figures which were released on Friday.

China’s official purchasing managers index, compiled by the China Federation of Planning and Logistics, fell to a five-month low of 50.1 in February.

Coal producer Bathurst Resources and gold and copper producers PanAust and OZ Minerals fell more than 6 per cent.

Job advertisements grew in February at their fastest rate in three years, rising 3 per cent, according to ANZ Banking Group’s monthly job ads index.

Industrial stocks also plunged on Monday after the release of weaker than expected building approval numbers for January cast more doubt over the likelihood of a domestic housing recovery – which some analysts had forecast would begin in early fiscal 2014.

The number of permits granted to build or renovate houses and apartments dropped 2.4 per cent from December to January. It was the second fall in two months.

The figure surprised pundits, with a survey of 21 economists predicting a 2.8 per cent gain.

Parker Asset Management fund manager Alvin Chan said the figures indicated persisting uncertainty among investors and consumers about the outlook for the local economy.

“Building approvals are a function of confidence – I’m not going to take on a new mortgage or renovate my home knowing that I might lose my job, or that I don’t have much certainty over the outlook," he said.

The figures come as bad news for the local industrial sector.

Industrial stocks in both the United States and New Zealand have benefited in recent months from a pick-up in demand for building materials and services, as the US economy strengthens and the Christchurch earthquake recovery effort continues.

The latest data demonstrates that an uptick in activity in the domestic housing recovery is still some way off.

Mr Chan said the Reserve Bank of Australia would be more likely to pass on interest rate cuts over the year due to the data.

But the analyst downplayed the likelihood of a rate cut when the Reserve Bank governors meet later on Tuesday.